NSE, SGX receive Sebi, MAS approval for creating trade link at Gift City

New arrangement may become operational by end-2020 after Finance Ministry nod

The National Stock Exchange of India (NSE) and the Singapore Exchange (SGX) have got the Sebi's and the Monetary Authority of Singapore's (MAS) regulatory approvals for creating a trading link at Gujarat International Finance Tec-City (Gift City).

The arrangement will enable investors, who deal on the SGX platform, to gain access to Indian securities through NSE International Financial Service Centre (NSE IFSC) at Gift City, which is situated in the Prime Minister’s home state of Gujarat.

Both SGX and NSE are locked in a legal dispute for more than a year over NSE launching new India products to replace Nifty-licensed products. The new products were announced after Indian bourses in February 2018 decided to end the licensing and data sharing agreements with their global bourses. The move was aimed at putting an end to offshore derivatives trading in Indian securities, which was gathering pace on platforms such as the SGX.

While NSE and SGX were engaged in arbitration proceedings, they were parallely working on an arrangement at Gift City which would be acceptable to all stakeholders.  

The so-called ‘connect’ model, subject to further approvals from relevant local authorities including India’s Finance Ministry, will enable SGX and NSE IFSC members to access Nifty products at Gift City while managing their exposures through their respective clearing corporations.

SGX and NSE will continue to work with key stakeholders to make the NSE IFSC-SGX Connect operational before the end of 2020, subject to relevant approvals, NSE said in a press note.

"The aim is to introduce a single pool of liquidity for dollar Nifty Futures contracts in one location," said Vikram Limaye, managing director and chief executive officer, NSE.

Initially, the two exchanges will launch SGX Nifty futures at Gift City, other products may follow later.

Limaye added that NSE is looking to discontinue the ongoing arbitration proceedings against SGX once all the residual approvals are in place and SGX Nifty ceases to trade in Singapore.
 

Chain of Events
 

• Trading volumes on Nifty in Singapore, Dubai cross that of onshore market
• Trend worries govt, Sebi as it dents tax collection
• NSE, BSE, MSE snap offshore trading ties with foreign bourses in Feb ‘18
• Move hurts SGX, where Nifty is among the most-traded contract
• NSE, SGX plan to devise solution to connect its investors through Gift City
• NSE, SGX say they have obtained nod from their respective regulators
• Gift Connect to start functioning from 2020, subject to approvals

The NSE is hoping to transition the liquidity in SGX Nifty futures to GIFT City in 12 months. Depending on where the trades originate, they will be cleared either by SGX's or NSE's clearing corporations, or, both. 

"SGX will set up a subsidiary in Gift City as a special purpose vehicle (SPV), which will be a trading member and clearing member of our GIFT City exchange," said Limaye. 

The SPV will be used to route all the trades from Singapore to the common liquidity pool in Gift City.

The current daily volume of SGX Nifty futures on the SGX is about $1.8 billion, while that on IFSC is $150 million.  

“India is an important market for international investors and we are committed to collaborating with NSE and other stakeholders to build connectivity and access to one of the fastest growing economies in the world," said Loh Boon Chye, Chief Executive Officer, SGX.

“This is a great opportunity to build vibrant markets in Gift City. We are working on varied product offerings to make Gift City the hub of activity for all India access products across asset classes for international investors and a gateway for home investors to access international markets," added Limaye.